Guan Tao, global chief economist at BOC Securities, wrote that Fed disagreement
over US inflation and rate policy remains, roughly split into three camps:
dovish (Williams), neutral (Waller) and hawkish. A hawkish Fed official who
testified to the Senate Banking Committee on July 15 repeatedly voiced
dissatisfaction with inflation, reiterated a zero-tolerance stance and said the
The Fed would continue to push inflation back to target. Guan says the official may
be staking out a hawkish posture now to build credibility and anchor inflation
expectations, but his push to revise the inflation framework and his long-run
view that AI will exert disinflationary pressure suggest his deeper intent may
still lean toward eventual rate cuts. The official even said he is more
concerned with the digits to the left of the decimal point of inflation. Guan
therefore sees the Fed likely to keep policy unchanged through the year;
however, if US financial turmoil, recession or labor-market deterioration occurs
over the next two years, the Fed could restart cuts. Current market pricing for
additional hikes may be excessive.
